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Free Money, Free People

A "mad" Austrian-economics fool calls for private money, coined from gold and Silver Bullion...

moving at such a dizzying speed in the economic waters in which the Cobden Centre swims, that it is hard to take a breath and to take stock of the implications, writes Andy Duncan at the Cobden Centre for monetary reform.

I remember having a conversation with some bankers five years ago in a City bar in which I dared to mention that I believed money should be based upon gold or silver and the laughter could be heard around the whole of Finsbury Square; the echoes took some time to die down and still rattle around my mind today.

It was interesting, however, to witness how this scenario evolved. Because sticking to my guns with that same conversation over the years, when pressed, has led to less laughter, and to more in the way of stony silences.

The rejoinders when they come have changed from "Come and have a drink, you mad Austrian fool" through to "It will never happen" and now to "The Bank of England have it all under control and it would be too difficult to implement anyway."

Steeped in Keynesianism though many are, what do bankers say now when the head of the World Bank, the laird of their clan, is daring to broadcast these same heresies? What if the Bank of England really has failed to keep everything under control? What happens to their world view when they wake up one day and find that the barbarous relic has returned?

Last week, of course, Ben Bernanke slipped $600 billion dollars into existence with a click on his word processor, and investors responded by rushing into the silver and gold markets, waving their paper dollars in the air, and got rid of them as fast as they could.

Now Robert Zoellick, the president of the World Bank, has called for gold to be brought back into the world monetary system. But is he leading events or is he being led by events? For me, it is very much the latter.

The world power elites love paper money, because the ability to print infinite amounts of money seemingly brings infinite power. Yes, it was only a forty year dream, since Nixon shredded the final tatters of Bretton Woods I, but what fun they've had in those forty years, until reality finally took hold again, in the same way that the Soviet nightmare in Russia lasted seventy years before reality eventually managed to kick down the Gulag. The power elites will be brought back to commodity money kicking and screaming, in the same manner of Gordon Brown being dragged out of Downing Street by the men in white coats, his bitten-down fingernails clawing desperately into the tarmac.

And here lies our danger. Because the power elites are smart people. Although they have lost control of the ship's wheel, they can see which way the wind is blowing and they will now try to take control of the sails and the mast.

We must keep up the pressure on honest money, keep up the fight, and never relax, because the kind of gold standard that Zoellick and his friends suggest will be a long way from what we need, and will ultimately break down to leave us in the grip of even worse government.

Here is one dark path I think they might try to take us down, before they mug us again:

  • A new world currency created by the World Bank (the name of the currency is irrelevant, but this will be the Bancor of Keynes, though I prefer to call it 'The Soviet');
  • This new 'Soviet' to be based upon some easily manipulated basket of commodities, including some proportion of paper ETF gold (let us say, 10%);
  • All other world currencies eventually to be abolished over a couple of decades and made illegal, including and especially the use of gold and silver for transactions, merely to 'protect' the essential birth of the Soviet, you understand;
  • The Soviet to be administered by the World Bank under a global United Nations framework;
  • All other details of the Soviet and its administration, along with the accompanying world fiscal and monetary policies to support it, to be devised by your favourite dystopian novelist, such as Neal Stephenson, Ayn Rand, or George Orwell.

I could be being over-dramatic, of course. David Galland, of Casey Research, is far more optimistic about the breakdown of fiat currency and I admire his pluck.

Assuming Galland's vision bears a greater semblance to reality than mine, once developments shove aside the usual naysayers such as Edmund Conway, I see a return to some form of precious metallic standard as almost inevitable, though not in the historicist Marxist sense. There are many bumps in the road between here and there and much that could go wrong from our point of view, especially if my dystopian vision above starts to become reality and Galland's optimistic alternative fades.

Strangely enough, Edmund Conway does actually make a few good points in his latest Telegraph piece decrying the return of the gold standard, the main one being that all of these schemes managed by government, including Bretton Woods I, have always failed in the past, so why should we believe that a new one will work now?

He is right. Bretton Woods II will fail too, if government bodies such as the World Bank control it. As Richard Ebeling said in a response to Martin Wolf, we need to get money back in the hands of the people and out of the dead hands of government. As Ron Paul said yesterday, we can even let governments keep their central banks if they want to keep them. But we must allow the free reintroduction of competing private currencies, probably based upon either a gold or silver coin standard, or both, and the settling and enforcement of private contracts using these private monies.

All taxes upon the transactions of precious metals must also be removed to facilitate this, such as the ridiculous Value Added Tax (VAT) upon silver in the European Union, with some regarding silver as a better monetary metal than gold, because silver enables day-to-day transactions.

The most pernicious tax to remove is of course the capital gains tax, because if you regard silver and gold as money, how can your metallic capital increase merely because there are a lot more printed paper notes around today than there were yesterday, increasing the ratio of fiat paper against commodity metal? We must get rid of all of these laws and tax treatments protecting paper money and crippling commodity money.

Given free unencumbered currencies, unmolested by government and supported by contract law, fiat currencies will die in short order as everyone switches to these new honest monies.

In the successful post-socialist age of the future, we therefore do not need monetary socialism and a fractional gold reserve standard managed by a world bank and an unsuccessful world government.

We need free money created and managed by free people.

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Built on anti-Corn Law radical Richard Cobden's vision that "Peace will come to earth when the people have more to do with each other and governments less," the Cobden Centre promotes sound scholarship on honest money and free trade. Chaired by Toby Baxendale, founder of the Hayek Visiting Teaching Fellowship Program at the London School of Economics, the Cobden Centre brings together economists, businesspeople and finance professionals to better help these ideas influence policy.

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